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Commitments and Other
6 Months Ended
Jun. 30, 2011
Commitments and Other [Abstract]  
COMMITMENTS AND OTHER
NOTE — 10 COMMITMENTS AND OTHER
Contract Manufacturing Arrangement
Milestone has informal arrangements for the manufacture of its products. CompuDent, STA and CompuMed instruments are manufactured for Milestone by Tricor Systems, Inc. pursuant to specific purchase orders. The Wand disposable handpiece without a needle is manufactured for Milestone in Mexico pursuant to scheduled production requirements. The Wand handpiece (with and without needles) is supplied to Milestone by a product broker that arranges for its manufacture by manufacturers in China.
The termination of the manufacturing relationship with any of the above manufacturers could have a material adverse effect on Milestone’s ability to produce and sell its products. Although alternate sources of supply exist and new manufacturing relationships could be established, Milestone would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, whether or not as a result of termination of such a relationship, would adversely affect Milestone.
In January 2010, the Company issued a purchase order to Tricor Instruments for the purchase of 12,000 Wand/STA Instruments to be delivered over the next three years. The purchase order is for $5,261,640. The Company will be required to make periodic payments over the next eighteen months to purchase the parts necessary to complete this production. As of June 30, 2011, the Company’s production and sales of instruments for this commitment has been delayed. Consequently, advances to contractor and accounts payable has been classified as current and long term at June 30, 2011.
Other Events
In December 2009, Milestone announced that it signed an Agreement of Intent with China National Medicines Corporation, Ltd. and Yichang Humanwell Pharmaceutical Co. Ltd., both incorporated in the People’s Republic of China (PRC), to develop intra-articular and epidural drug delivery instruments utilizing Milestone’s patented CompuFlo technology. Milestone and its two PRC joint venture partners agreed to establish a joint venture entity for this purpose in 2010. The required initial funding for the new entity, estimated by the parties at $1.4 million, was to have been provided by the two PRC companies, although Milestone would determine the proposed uses of their contribution. The Company has notified China National Medicines, LTD and Yichang Humanwell Pharmaceutical Co. Ltd, both signatories to the December 2009, Agreement of Intent, to develop these medical instruments, that the Company has terminated this Agreement of Intent, effective July 13, 2011.
In March 2011, Milestone entered into a new agreement with a PRC entity to establish a joint venture entity in the PRC to develop intra-articular and epidural drug delivery instruments utilizing Milestone’s patented CompuFlo technology. The PRC entity agreed to contribute up to $1.5 million to this joint venture entity, based on progress reports from Milestone and subject to refund if the instruments are not developed because of technological problems within 30 months of the inception date. The initial $500,000 capital contribution was to have been made at inception. The PRC joint venture entity has not been established. Therefore, to move the process forward, Milestone organized a domestic research and development corporation to which its joint venture partner made an initial capital contribution of $400,000, as of June 30, 2011, $105,000 of which was disbursed to Milestone in March 2011 as reimbursement for previously incurred research and development costs expensed by Milestone in prior years. Such amount ($105,000) is included in accrued expenses and other payable at June 30, 2011 until the PRC joint venture entity is established and the required initial funding by the other party is completed. The domestic corporation will be owned fifty percent by Milestone and fifty percent by the other party. Milestone will account for its investment in the joint venture using the equity method of accounting after an agreement is signed by both parties and the required initial funding by the other party is completed. The newly formed corporation has net assets of approximately $258,000 of cash as of June 30, 2011. Milestone believes that this new joint venture represents a significant step forward in Milestone’s efforts to have its innovative computer-controlled drug delivery technology adapted for medical usage.
Subsequent to June 30, 2011, the joint venture partners completed the funding of its first capital financing tranche of $500,000 to the US research and development corporation. Effective, July 14, 2011, the US research and development corporation (Milestone Scientific Research & Development Inc) will proceed with the development of the two medical instruments (intra-articular and epidural drug delivery instruments).